February 22, 2017 Read More →

On the Blogs: The American Pipeline Overbuild Problem, in Appalachia

Peter Anderson for Appalachian Voices:

It’s no secret: oil and gas pipelines have captured the nation’s attention, not to mention the new administration’s. Standing Rock’s resistance to the Dakota Access pipeline continues to put water protection, indigenous rights and environmental justice at the fore of any pipeline discussion. And not so long ago, the Keystone XL pipeline came to symbolize the United States’ willingness to lead (or not) on climate action. Now the Trump administration hopes to revive both.

The Trump administration also hopes to push through the Atlantic Coast Pipeline, which would transport fracked gas 600 miles from the Marcellus Shale in northern West Virginia through Virginia and into North Carolina. A list of the administration’s top 50 infrastructure priorities leaked in January includes the Atlantic Coast Pipeline at number 20. The document reports the pipeline’s permitting process as “done,” despite the fact that comment periods for some federal and state permits are currently open and no permits have been issued. How’s that for alternative facts?

The Federal Energy Regulatory Commission (FERC), the agency with primary authority for permitting interstate gas pipelines, was generally viewed as pipeline-friendly even prior to the Trump era. The agency allows a 14 percent rate of return on investments in pipeline capital, and its environmental reviews typically fall short in analyzing both the need for additional pipelines and the projected climate impacts of new projects (in addition to many other deficiencies).

However, former FERC Chairman Norman Bay offered a surprising call for reform of the agency’s pipeline certificate process when he stepped away at the beginning of February (see the last six pages of this FERC order). Bay criticized the method FERC uses to determine whether or not there is a need for a pipeline. He pointed out that FERC usually looks to precedent agreements between pipeline owners and gas shippers as evidence of need. But this method is flawed.

According to Bay, “focusing on precedent agreements may not take into account a variety of other considerations, including … whether the precedent agreements are largely signed by affiliates.”

In other words, a company applying to build a new pipeline says “look, we have subscribers lined up to buy gas from the pipeline, so there must be a need for it.” But a closer examination reveals that the buyer and the seller are both affiliates of the same parent corporation.

This echoes a concern highlighted in a report from the Institute for Energy Economics and Financial Analysis published in April 2016. That report found that “in situations in which a pipeline developer contracts with an affiliate company to ship gas through a new pipeline, this is strong evidence that it is doing so because of the financial advantage to the parent company from building the pipeline, but not necessarily that there is a need for the pipeline.”

This report studied the risks of building both the Atlantic Coast Pipeline and the Mountain Valley Pipeline, a 300-mile gas pipeline that would also cut through the Appalachian regions of West Virginia and Virginia. It pointed out that for the Atlantic Coast Pipeline, five of the six companies contracted to buy gas are affiliates of the companies building the pipeline. Energy behemoths Dominion Resources and Duke Energy have a combined 85 percent ownership stake in the pipeline, and their subsidiary companies have subscribed to 86 percent of the gas shipped. For the Mountain Valley Pipeline, all six of the buyers are affiliates of the companies building the pipeline.

Full item: FERC’s pipeline review process is broken

 

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